Robert Kelly, chairman and chief executive officer of Bank of New York Mellon Corp. , returned to his native Nova Scotia recently to speak about globalization at a dinner hosted by Saint Mary’s University, of which he is chancellor. In a conference call with Halifax reporters, he discussed the North American business landscape, the hangover from the financial crisis and bankers’ relationships with Washington.
Speaking either as a Canadian or a Wall Street executive, what do you think about the proposed LSE-TMX and Deutsche Boerse-NYSE deals?
I can’t speak to these particular deals, whether they make sense for the country or for the shareholders, but consolidation does feel like an inevitable thing. On a long-term basis there’s probably going to be three major exchanges: probably one in Europe, one in North America and one in Asia-Pacific. And there’ll probably be some specialty exchanges that hang off that.
I do put the Canadian hat on and think, “Wouldn’t it be a shame to lose your major exchange?” On the other hand, I think about the importance of having open borders and open investment. And it’s not like the Toronto Stock Exchange is going to go away. You’re going to have foreign shareholders. But we are in a global economy and that is the reality.
Two and a half years since the financial crisis erupted, how would you characterize the business landscape for U.S. banks?
All the big banks are now healthy again, essentially, and most announced that they were finally raising their dividends. They’re starting to buy back stock, their capital ratios are far stronger than they were a few years ago, their balance streets are stronger. U.S. banks are still not quite as strong as Canadian banks, which fared extraordinarily well by global standards, but I would say they’re 80 per cent of the way back now. … American banks now are much stronger than their counterparts in Europe, by and large, and stronger than their counterparts in Japan as well because they’ve taken their medicine more aggressively.
There’s still a lot of risk on the U.S. economy but it feels, by each passing month, like most of our forecasting errors are towards the upside. … If we can get housing stabilized, if we can start to get the unemployment rate down, I think we could have some pleasant surprises over the next couple of years for the U.S. economy.
What’s in store for U.S. real estate?
It feels like it has another 5 per cent to go before it hits bottom. I’m hoping by this summer that we’ll be kind of bumping along at the bottom and then hopefully we’ll have an extended period of stability before things start to edge up a little bit. But we’re not going to see housing prices bump back. The Canadian experience, where housing prices are up almost as much as the U.S. prices were down, is an extraordinary contrast. This whole thing could have been avoided in the U.S., in my view, if we had had a system that was more like Canada’s.
How much of a concern are the lawsuits alleging your bank profited unfairly on foreign exchange transactions, and how long will it take to resolve them?
First, we are the strongest rated bank in the United States and our debt trades at the lowest spreads in the U.S.. We’re very profitable. We’re a very healthy company. Secondly, one of the realities of operating in the U.S. is you have to expect more lawsuits. I think we’re in the final stages of the economic crisis and lawsuits are part of it. The last stage of this is settling all the lawsuits. The way a lot of people think, including me, is that when markets are going up everyone’s really smart and when markets go down it’s not their fault they lose money. I think solving all the legal issues that come out of the U.S. financial crisis will take years. My expectation is that we will have a lower market share of those sort of legal issues than other financial institutions, because of the nature of the businesses we’re in.
How is the current relationship between Wall Street and the Obama administration?
It has been very encouraging to see, over the past six months, that there seems to be real improvement in relationships between Washington generally, including the administration, and business. I’ll paraphrase this wrong, but I remember Bill Clinton saying back in the mid-1990s, if you really want more jobs, you can’t be beating up the guys who create the jobs. You have to have a partnership between government and business if we’re going to get people back to work. And that has to be job one for the United States now. Hopefully, the public agrees that it’s time to put these issues behind us.
This interview has been edited and condensed.